6. NexGen Electronics is considering a new project. The company expects to sell 10,000 units per...

Transcribed Image Text:

6. NexGen Electronics is considering a new project. The company expects to sell 10,000 units per year at $45 net cash flow apiece for the next 10 years. In other words, the annual operating cash flow is projected to be $45 × 10,000 = $450,000. The initial investment required is $2,500,000. Assume a relevant discount rate of 13%: Calculate the base-case NPV. a. b. Suppose at the end of year 1, it is equally likely that expected sales from years 2 through 10 will be revised upward to 12,000 units or revised downward to 8,000 units. The project can be dismantled and sold for $2,000,000 at the end of the first year. Calculate the NPV of the project given this new assumption. 6. NexGen Electronics is considering a new project. The company expects to sell 10,000 units per year at $45 net cash flow apiece for the next 10 years. In other words, the annual operating cash flow is projected to be $45 × 10,000 = $450,000. The initial investment required is $2,500,000. Assume a relevant discount rate of 13%: Calculate the base-case NPV. a. b. Suppose at the end of year 1, it is equally likely that expected sales from years 2 through 10 will be revised upward to 12,000 units or revised downward to 8,000 units. The project can be dismantled and sold for $2,000,000 at the end of the first year. Calculate the NPV of the project given this new assumption.

Answer rating: 100% (QA)

a Basecase NPV Annual operating cash flow for 10 years 450000 Initial investment 250... View the full answer